Luxury During the Epidemic: The Rise of the Chinese Market
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Advances in Economics, Business and Management Research, volume 203
Proceedings of the 2021 3rd International Conference on Economic Management and
Cultural Industry (ICEMCI 2021)
Luxury During the Epidemic: The Rise of the Chinese
Market
Zongyu Li
1
Vanderbilt University, Nashville, Tennessee, 37235
*Corresponding author. Email:lizongyu127@gmail.com
ABSTRACT
The sudden outbreak of the epidemic has caused a huge economic blow to the world, as various industries have stalled
without any preparation. The same goes for the luxury industry, which has suffered a significant loss from stagnant
tourism, retails, and marketing activities. Hence, by analyzing the sales situation and marketing strategies of the
luxury market from 2010 to 2020, this research mainly discusses the consumption trend of the luxury market after the
epidemic from two aspects. On the one hand, luxury brands still need to wait for a long time to recover overseas
markets, and re-measure their real consumption value after the epidemic. On the other hand, the Chinese luxury
market is experiencing a consumption revolution brought by the pandemic, which may exert a lasting impact on the
consumption habits of Chinese consumers in the long term. This study found that the Chinese luxury market has
effectively promoted the return of consumption through the duty-free store policy to enlarge the domestic market size.
To attract Generation Z and returning middle-class customers who have great consuming potential in the Chinese
luxury market, luxury brands need to create a multi-channel sales approach and carry out diversified, localized, and
digital marketing strategies to achieve sustainable development.
Keywords: luxury market, China, pandemic, COVID-19
overseas market analysis, the research shows the
1. INTRODUCTION development trend and long-term vision of the luxury
goods industry after the epidemic.
Due to the attack of the coronavirus in 2020, luxury
brands need to find new growth points to recover the 2. THE COLLAPSE OF THE OVERSEAS
economic losses in their global recession. Due to MARKET
China's excellent epidemic prevention, the high rise of
China's luxury goods market has sparked industry-wide With the recurrence of the epidemic, the global
concern. The rapid recovery of China's luxury market is luxury market has become quite uncertain. The negative
closely related to the changes in the global luxury impact of many long-standing but unappreciated
market. The current research on the luxury goods problems have emerged, such as excessive industry
market is derived from the business analysis of iteration, unavailable fashion shows, dependence on
consulting companies, which mostly aims at specific single supply channels, and fraudulent sales in the
customer segments and limited markets instead of a global market, concerning the survival of the overseas
comprehensive analysis of the global market. Therefore, luxury market. The escalation of the coronavirus has
the author explores and compares the changes of the delayed the resolution of these problems, shrinking the
overseas market and Chinese market during the global luxury market constantly.
epidemic to explain the miracle recovery of the Chinese
luxury market. The first part of the research mainly 2.1. Out-of-control Industry Rhythm
points out significant shortcomings exposed in overseas
markets during the epidemic, which tend to exert a The luxury market has been known for its frantic
long-lasting influence on the luxury industry. Secondly, pace of iteration for a long time. After leaving Dior in
the study analyzes the main reasons for the boom in the 2015, Raf Simons said he had long been exhausted
Chinese luxury market. Through both domestic and because of the intense schedule and workload, leaving
Copyright © 2021 The Authors. Published by Atlantis Press International B.V.
This is an open access article distributed under the CC BY-NC 4.0 license -http://creativecommons.org/licenses/by-nc/4.0/. 1744Advances in Economics, Business and Management Research, volume 203
him with little time for creative thinking. As an The surrogate shopping industry was started around
essential showcase and marketing channel, the seasonal 2005. International students or people who work abroad
fashion weeks have been the highlight of the fashion utilize the pricing difference of luxury goods to earn
industry. To prepare for the fashion week, it is common profits. According to the Chinese Fortune Character
knowledge that not only the designing team suffers Institute, Chinese consumers bought nearly 46 percent
from the huge work pressure, but also the related of the world's luxury goods in 2016, reaching 120.4
merchandising team, marketing teams, and media are all billion U.S. dollars, a large part of which did not come
busy around the fashion week system. from China's local luxury stores but the overseas market
behind the surrogate shoppers [2]. Using Australia as an
However, since the proliferation of material
example, the Chinese community in Australia is
production, luxury brands have filled their year-round
currently about 1 million people, with at least about 5
schedules with the release of the resort and Haute
percent (i.e., 50-60,000 people) engaged in surrogate
Couture collections. The rhythm of the fashion industry
shopping industries. The Australian surrogate shoppers
has evolved from a seasonal to a monthly basis for
"exported" up to $600 million worth of products to
continuous marketing and exposure to please
China. Hence, it is fair to say that surrogate shoppers
consumers. Luxury brands are well aware that they are
feed a large part of the overseas luxury market.
riding on a speeding train which is of great potential to
stall and crash in the next moment, overdrawing their However, due to negative factors brought by the
customers' passion for consumption. Now, as the epidemic, such as reducing flights, the slowdown of
epidemic has arrived out of nowhere, the fashion cross-border logistics, and the return of many overseas
industry has come to an instant halt and shutdown, Chinese to their home countries, the surrogate shoppers
leaving luxury brands in launching and promotional gradually disappeared from the overseas luxury stores.
disaster. With the absence of the fashion week, brands The disappearance of surrogate shoppers has dealt a
were desperate for alternative platforms to launch and severe blow to overseas markets, especially the luxury
promote their products, maintaining the exposure. The markets in Europe, America and Japan, and Korea. For
lack of alternative promotional options instantly example, several duty-free stores have been withdrawn
crushed the expectations of overseas luxury consumers. from Korea since February 2020. Moreover, luxury
brands need to realize that the depression of the
2.2. The Disappearance of Chinese Surrogate overseas market caused by the disappearance of
Shoppers duty-free is likely not temporary. With the development
of duty-free stores within China, Chinese consumers are
Chinese surrogate shoppers buy products overseas gradually abandoning the option of buying through
and sell them to mainland customers to make a profit, surrogate shoppers. Therefore, it is necessary for luxury
and they usually avoid tariffs through various channels brands to clearly realize that their future strategies
to save cost. The primary commodities purchased by around Chinese consumers have to consider the
surrogate shoppers are luxury goods. According to a changing shopping preferences and habits of consumers
report by Bain Company, the size of the luxury goods during the epidemic.
buying industry ranged from RMB 55 billion to RMB
75 billion in 2014, which was almost half of the sales of 3. THE RISING CHINESE MARKET
luxury stores in mainland China [1]. Furthermore,
approximately 70% of Chinese consumers admitted to The impact of the outbreak continues to reverberate
using surrogate shoppers, resulting in a 7-8 times through the industry. While the U.S. and Europe will
increase in the surrogate shopping market from 2010 to need more time to recover, China, which is
2014. well-proofed against the epidemic, is experiencing a
solid recovery. According to the report from Bain
1E+11 Company, unlike the backdrop of a 23% contraction of
the global luxury market in 2020, luxury consumption
8E+10
within China rose 48%, reaching RMB 346 billion. In
6E+10 just one year, the size of the Chinese luxury market has
4E+10
increased from 11% to 20% of the global market share.
It is expected that in another five years, China may
2E+10 become the largest luxury market in the world [3]. As
0 the policy of duty-free stores unfolds, the situation of
Chinese luxury consumption outflow is gradually
2010 2011 2012 2013 2014
reversed, making the profit of the Chinese luxury
market clearer and more attractive. Hence, luxury
Figure 1: Surrogate Shopping Sales Amount in China brands have begun to abandon their inherent reserve,
1745Advances in Economics, Business and Management Research, volume 203
adopting several localized and digital marketing sharply. Though these young idols and celebrities, who
approaches to satisfy Chinese consumers. are famous for their appearances and gossips, fail to
match the brand tone, luxury brands still covet the
3.1. Development of Domestic Duty-free Shops consumption potential of their huge Generation Z fan
base. However, most luxury brands did not act out of
With the stagnation of global tourism influenced by concern for the reputation of the luxury world as a
the coronavirus, it is undoubted that Hainan's duty-free whole.
store policy has promoted the Chinese luxury market
successfully, enhancing the returning trend of Chinese Burberry embarked on a disruptive innovative
luxury consumption. According to the official marketing strategy by taking the first step in
disclosure of China Central Television, since the cooperating with idols and celebrities. Kris Wu became
implementation of Hainan's duty-free store policy, more Burberry's first non-British ambassador and walked for
than 280,000 shopping passengers have visited Hainan, the show in October 2016. Stimulated by the star effect,
and duty-free sales amounted to 2.219 billion yuan, Burberry's sales in the third quarter of 2016 soared by
which is 2.34 times over the same period last year [4]. 25 percent, and Kris Wu was regarded by overseas
According to the report of Yanqing He and Rulian Chen media as the biggest contributor to the brand's
from the CITIC Research Institute, the domestic performance growth. In 2017, Angelababy became the
duty-free scale will exceed about RMB 50 billion in first brand ambassador of Dior in China. The
2019 and is expected to exceed RMB 160 billion by appointment news released by Dior's Weibo accounted
2025, eventually reaching the size of RMB 200 billion for more than 380,000 reposts in just a few hours.
[5]. Through the gradual expansion of the celebrity
endorsement team, the number of Dior Weibo fans has
What is certain is that as foreign epidemics continue soared from 1.79 million to 6.56 million in just four
to recur, the Chinese duty-free market will become years, becoming one of the most popular luxury brands
more diversified. Consumer demand for duty-free among Chinese consumers. According to the estimation
products will rise, especially for consumers who of Morgan Stanley, Dior's sales in 2019 increased by
originally tend to buy entry-level luxury goods such as 18.7 percent to 6.3 billion euros. After the huge success
beauty and perfume when traveling abroad. Most luxury of Dior, this disruptive innovative marketing strategy
brands are currently facing the blow of a significant formula was madly copied by more luxury brands,
decrease in the number of Chinese tourists in the seeking cooperation with young celebrities and idols
overseas market, which consumer group will be more actively for the Chinese market. The situation has begun
sensitive to price factors than others. Domestic to get out of control, as the selection standard of luxury
duty-free stores may become the new destination for brand ambassadors has become lower and lower.
Chinese tourists who cannot purchase luxury abroad.
The duty-free store is a globally competitive business, On January 19, 2021, Prada announced the
as it is crucial for consumers to know where they can termination of cooperation with Shuang Zheng due to
buy their target products at a good price, which is her surrogacy and abandonment scandal, which
closely linked to the bargaining power of the operators. cooperation only lasted nine days. Later on July 20,
China's duty-free policy and the returning trend of Louis Vuitton announced to end the two-year
Chinese luxury consumption means that luxury brands partnership with its global ambassador Kris Wu, after
should put more effort into developing the Chinese the police informed Kris of the rape charge. On August
market. 13, as Zhehan Zhang's visit to the Yasukuni Shrine in
Japan sparked a huge controversy, Japanese jewelry
brand TASAKI decided to terminate its partnership with
3.2. Disruptive Innovative Marketing Strategy:
Zhehan Zhang, whose endorsement lasted no more than
Celebrity Endorsements that 12 days. It is no exaggeration to conclude that the
The Chinese luxury market experienced a brief aura of celebrity endorsements has been wholly
winter period from 2012 to 2014, when endorsements of shattered after a series of scandals. Although the
luxury brands were mainly successful artists with appointment of celebrity ambassadors has brought
excellent works and reputations. For example, actress Li considerable short-term benefits to luxury brands, the
Bingbing became the brand ambassador of Gucci in marginal effect of this marketing strategy has
2003 due to her outstanding acting career and diminished and posed unknowable risks. Though luxury
international influence. The discreet endorsement brands have been well aware of the risks involved, the
choice of luxury brands reflects the conservative reason why they still bet on celebrities is that the Chinese
attitude and the protection of their brand image. market is rapidly gaining ground in the global luxury
However, with the rapid development of social media industry. The fierce market competition does not allow
and the rise of the fan economy, the huge profit and luxury brands to lose the Chinese market, while no other
value brought by young idols and celebrities have risen market is as dependent on celebrities as the Chinese
market. According to the Celebrity Consumption
1746Advances in Economics, Business and Management Research, volume 203
Influence Report given by the CBN data, even during the The epidemic in early 2020 further reshaped the
epidemic, the amount of celebrity-led spending relationship between luxury brands and social media.
increased by 52.3 percent in just six months [6]. On the The epidemic will eventually pass, while the impact of
social accounts of luxury brands, the reposts and likes of the epidemic on consumer behavior may be permanent,
celebrity-related updates are usually thousands of times which means that the deep digitalization has benefits for
higher than those of regular messages. the long-term development of luxury brands. On the
premise that the epidemic may continue to be
However, when almost all luxury brands have
prolonged, powerful luxury brands should see this as an
appointed celebrity ambassadors, the return on
important opportunity to accelerate their online market
investment ratio of this disruptive innovative marketing
presence and digital innovation. With the advent of the
strategy will drop significantly. To explain, the
5G era, online shopping may become the mainstream of
disruptive innovative strategy of appointing celebrity
luxury consumptions. As the epidemic becomes
ambassadors successfully has opened the new market
unpredictable, fashion brands need to seize every
by turning non-customers into customers. Nonetheless,
opportunity to face the future reshuffle in the industry.
according to Christensen, it is challenging to design a
sustainable strategy based on disruptive innovation, as
the disrupting enterprises have to establish their 4. CONCLUSION
business model and value system to maintain their Due to the continuous evolution of the coronavirus,
sustainability and competitive advantages [7]. To the influence of the epidemic will likely continue to
illustrate, for a successful luxury brand like Dior, when reverberate through the luxury industry in 2022. The
an approach becomes a replicable formula, it means the epidemic crisis offers an unprecedented opportunity for
brand has to innovate its strategies. With the high the luxury industry to develop itself for long-term
endorsement fees caused by the blind pursuit of growth in China. From the perspective of the global
celebrity endorsers, luxury brands need to consider market, the outbreak exposes long-standing operational
marketing expenses as well as the cost of maintaining weaknesses in the industry. As overseas markets need
the celebrity effect. more time to recover and rebuild, luxury brands need to
On this basis, the Chinese luxury market, which tap into new customer segments in the booming
currently develops faster than the global market, tends Chinese market for profitable growth. It is also essential
to be the first to enter the rational adjustment period. To for luxury brands to realize that the impact of the
cooperate more efficiently, luxury brands have to outbreak on consumer habits could be long-lasting.
develop diversified forms of cooperation in addition to Hence, by constructing the maturing digital channels in
celebrity endorsements. the Chinese market, luxury brands should develop
sustainable innovative strategies to appeal to both the
3.3. Online Markets: E-Commerce Wars material and emotional values of the returning Chinese
middle-income consumer group and the emerging
For a long time, the efforts of luxury brands for Chinese Generation Z consumers, capturing the market
digitalization were limited to selling goods that couldn't share for the future expansion.
be sold offline or putting fashion shows online that
The next step of my research will focus on several
couldn't be enjoyed in person. In fact, the uninspired
aftermaths brought by the continuous expansion of
online experience is unattractive to the consumers
luxury brands, as their efforts and investments in the
compared to the in-person events. However, fashion
market will eventually become brand premiums.
brands have realized that creating an outstanding online
Indeed, during the epidemic, more luxury brands have
experience for consumers during the epidemic is
introduced a regular price increase model to supplement
necessary. To explain, under China's strict quarantine
their expansions, which set a trap for their long-term
policy, it is difficult for Chinese consumers and media
development. At the same time, the increasing prices of
to undertake the price of weeks of isolation to attend
luxuries give Chinese local fashion brands growth
fashion weeks and purchase luxuries overseas.
opportunities, which products are more affordable for
Therefore, in order to attract Chinese consumers, luxury
Generation Z customers. Moreover, Chinese local
brands have placed their hopes on the online market
fashion brands have expressed strong abilities to
instead of traditional marketing strategies, embracing
achieve customers’ resonance and emotional value with
digitalization completely. Taking Chanel, who has
a deep understanding of Chinese culture. As this
always been cautious about digitalization as an
research fails to demonstrate the unstoppable growing
example, the famous luxury brand collaborated with
trend of Chinese local fashion brands, the author will
Chinese video site Tencent to live-stream its fashion
mainly focus on both internal and external defects in the
show for the first time. Tencent's local experience
development of luxury industries in the future.
helped Chanel achieve huge success, as the live viewers
of the show reached 3.58 million, which is three times
as many as that of Gucci and Prada.
1747Advances in Economics, Business and Management Research, volume 203
ACKNOWLEDGMENT
This research was partially supported by Dr.
Kishore Sengupta from the University of Cambridge,
who sincerely shared his great insight and precious
experience to assist the research significantly, although
any errors in this paper should not stain the reputation
of this esteemed person. Dr. Kishore Sengupta’s
professional knowledge about business innovation and
marketing strategy immensely enhanced the manuscript.
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